India’s 20 state owned banks get about $5 billion back from a loan written off and they are thrilled

• Creditors of DHFL, which include about 20 Indian banks and many other financial institutions, would recover an aggregate of ₹38,000 crore ($5 billion) from the resolution process of the firm and acquisition by Piramal Enterprises.
• Many Indian banks had exposure to the crisis hit housing finance firm Dewan Housing Finance Corporation including most of the public sector banks.
• Analysts say this is one of the biggest resolutions till date and the move will bring recovery into the banking sector.

Piramal Group has completed the acquisition of crisis-hit Dewan Housing Finance Corporation (DHFL) for ₹34,250 crore. DHFL’s creditors will recover 46% of their pending dues via the resolution process, the company said in a statement.

The amount of ₹34,250 crore ($4.61 billion) paid by Piramal will be through a combination of cash and non-convertible debentures and an amount of around ₹3,800 crore will be paid to the creditors from the cash balance available with DHFL.

Analysts say this is one of the biggest resolutions till date to financial institutions after the IL&FS crisis. About 19 Indian banks have exposure to the crisis-hit housing finance firm including most of the public sector banks.

Shares of the top five lenders moved up on Wednesday after the company said it will pay ₹38,000 crore in total to all creditors.

“DHFL’s resolution has finally happened and the recovery upgradation and reversal provision will be visible in banks (books) in the coming quarters which is positive for the sector and the banks having exposure to the firm,” Siddharth Purohit, research analyst at SMC Securities told Business Insider.

There are about 20 Indian banks and many other financial institutions that have lent to DHFL over a period of time.

Here is a list of top five lenders to the firm:
Source: ICICI Securities research report, January 19, 2021

How did one of the country’s biggest crises take place?

DHFL, a non-banking financial company, primarily gives loans to home buyers in India’s tier 2 and tier 3 cities.

After the IL&FS crisis emerged, in September 2018, DHFL’s stock got hammered, by as much as 60%. Then, in January 2019, Cobrapost claimed that the company’s promoters were involved in a ₹31,000 crore scam siphoning off money.

32 Indian banks sanctioned a whopping Rs 50,000 crore loan for #LooteraDewan and @TheOfficialSBI has highest exposure at Rs 11,500 crore. There are 15 banks with exposure more than Rs 1,500 crore. How did it work?#LooteraDewan pic.twitter.com/EtRqAyMDYt

— Cobrapost (@cobrapost) January 29, 2019

On June 4, 2019, the company failed to pay about ₹900 crore worth of interest, prompting ratings agencies to downgrade all of its commercial papers.

Adding to the woes, allegations of dubious financial transactions continued to emerge against Kapil Wadhawan (the then chairman and managing director) and Dheeraj Wadhawan (then a non-executive director). In October last year, the enforcement directorate (ED) even conducted raids at several DHFL offices and promoter residences.

Putting an end to the fiasco, on November 29, 2019, the Reserve Bank of India (RBI) initiated insolvency proceedings against DHFL.

To the company’s rescue, in January, 2021, billionaire Ajay Piramal's Piramal Group emerged as the preferred bidder for debt-laden mortgage lender DHFL. After two years of the crisis, many banks who had lent money to the housing firm will receive part of their loans along with a lesson learnt.

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